A new study reports that CEOs with diverse networks generate an approximately sixteenfold firm market value increase relative to their compensation.
Further, investors already seem to appreciate the value of a CEO with a diverse network. The researchers found that firms whose new CEO had a more diverse network than their predecessor experienced positive and significant short-run stock market reactions. By contrast, firms whose new CEO had a less diverse network than their predecessor experienced significantly lower announcement cumulative abnormal returns.
The researchers are explored casual factors to explain the link between the diversity of the CEO’s network and firm value. Their findings indicated that diversity of a CEO’s network drives higher firm value because network diversity increases (i) innovation and (ii) diversified M&A activity.
Felicity Menzies is CEO and Principal Consultant at Include-Empower.Com, a diversity and inclusion consultancy with expertise in inclusive leadership, unconscious bias, cultural intelligence and inclusion, gender equity, empowering diverse talent. Felicity is an accredited facilitator with the Cultural Intelligence Centre and the author of A World of Difference. Felicity has over 15 years of experience working with and managing diverse workforces in blue chip companies and is a Fellow of Chartered Accountants of Australia and New Zealand. Felicity also holds a Bachelor of Commerce and a Bachelor of Arts in Psychology.